Understanding 1st, 2nd, and 3rd-party data for marketing success

The 360-degree view of a customer continues to be the crowning glory for modern marketing organizations and the analytics teams that support them. It drives the segmentation strategies the organization needs to succeed and the personalization that consumers have come to expect. 

As more and more customer data becomes available, the picture of the customer becomes ever clearer. However, as that picture becomes clearer, so  do the rules, regulations, and laws surrounding how companies obtain their 360-degree view. In this article, we demystify data concepts and clarify the meaning of first-party, second-party, third-party, and even zero-party data.

As marketers, we must have a clear understanding of our data’s provenance––where it comes from and how we can use it.

First-party data

First-party data, typically the most valuable to an organization, is the data companies own about their customers. It typically contains Personally Identifiable Information (PII) and all of the information gathered about customers through their interactions with the business. As technology continues to evolve, companies collect, ingest, and leverage first-party data more rapidly than ever before. This data provides substantial information that marketers can use to evolve the way they engage with their customers and ultimately improve customer experience.

Third-party data

Third-party data has been the next most thought about in the context of customer data. This data typically contains aggregated information about a broader group, of which customers are a subset. Typically, an aggregator pays other organizations for their first-party data. Sources may include websites, social media networks, surveys, government censuses, and subscriptions. It contains information about markets in which the business operates, as well as those it does not. It can be helpful for prospecting, personas, understanding sentiment, identifying potential geographic regions for growth, and so much more. However, if an organization has access to this information, so do all of their competitors. Third-party data provides less-precise information that is more generalized and directional in nature. 

Second-party data

In between first-party data and third-party data, second-party data is increasing in popularity. Essentially, an organization’s first-party data is another organization’s second-party data. Organizations gain access to second-party data through a trusted partner. Typically, the partner is not a competitor, but a complementary business with a complementary target audience. Both organizations benefit from advertising and brand awareness, and often co-brand and/or co-market to expand into new audiences.

Some examples of second-party data include a TD Bank partnership with Starbucks, which allows customers to earn both Starbucks Rewards and Aeroplan (a travel rewards program) points faster. Aeroplan receives data from TD about customer behavior (shopping at Starbucks).

The data benefits of a loyalty program

With the upcoming loss of third-party cookies, first-party and zero-party data become even more valuable. Marketers must have a good handle on the source of the used data being, the availability of data from other parties, and treating existing customers’ data with even more care.

Loyalty programs are an example of successful relationships between parties that can leverage second-party data. Many examples exist, including partnerships such as AAA and its global affiliates partnering with restaurants, retailers, and travel businesses: Starbucks & Spotify, Uber & Spotify, Fitbit and Health Insurers, L’Oreal & LiveNation, and more. 

In these scenarios, the partnerships aim to benefit both organizations, and both organizations then have the ability to leverage second-party data (with the right permissions of course) to expand what they know about their own customers and others like them. The partnership itself determines what first-party data will be shared with the partner, and precisely how it is captured and shared.

These agreements help ensure privacy compliance and data usage transparency, giving marketers the data that they need without eroding consumer trust.

However, partnerships do not always have adequate consumer transparency. The Facebook Cambridge Analytica scandal illustrates a cautionary tale of what can go wrong.

Zero-party data

While people tend to focus on first, second, and third-party data, Forrester Research has coined the term zero-party data. A customer or prospect intentionally shares this data with a brand and includes preferences and permissions. Some examples of zero-party data include preference center data, purchase intentions, personal context, and how the individual wants the brand to recognize their interactions.

Zero-party data is a subset of what is traditionally viewed as first-party. Customers have full control over zero-party data. Organizations increasingly recognize the difference between customer and prospect data that they have the blessing to act on (zero-party) and more traditional first-party data, such as transaction history.

Customers (or prospects) give zero-party data to an organization to tell it what they want them to know about themselves, and they can change it as their preferences and relationship with the organization evolves. Whereas organizations own traditional first-party data, customers own zero-party data. As a result, companies cannot transfer or share it with others.

Good, clean data leads to good decision-making

We have no doubt marketers will continue to find challenges in the rules that govern the use of customer data. Having accurate customer data (and a clear understanding of where that data is coming from) provides a multitude of benefits, including beneficial decision-making. If you would like support in understanding where your data is coming from and how better to leverage it, talk to Shift Paradigm today!